By Jon Cassidy | Ohio Watchdog
Now that Gov. John Kasich has decided that Ohio will not establish its own health insurance exchange, small business owners with more than 50 employees have some hope for relief from a potentially ruinous requirement to provide employees government-approved health plans.
According to legal experts, Ohio small businesses now have standing to sue the Internal Revenue Service to block a new tax the IRS is imposing in order to force business to provide health care coverage.
The Patient Protection and Affordable Care Act, commonly known as Obamacare, requires businesses with more than 50 employees to provide government-approved health plans or face a tax penalty. But due to the way the law was written, the requirement depends on the existence of a state-run health insurance exchange.
No state-run exchange equals no employer mandate. That’s according to a strict reading of the Affordable Care Act, which the IRS is giving a much more liberal interpretation.
“The Act’s ‘employer mandate’ taxes employers up to $3,000 per employee if they fail to offer required health benefits. But that tax applies only if employers receive tax credits or subsidies to purchase a health plan through a state-run insurance exchange,” Maurice Thompson, director of the 1851 Center for Constitutional Law in Ohio, said in a new news release.
If the federal government sets up the exchange, the employer mandate won’t apply, according to Thompson’s interpretation.
As of Nov. 16, just 17 states plus Washington, D.C., had announced plans to set up their own exchanges. Many of the rest will leave it to the federal government.
However, the Affordable Care Act doesn’t specifically authorize the federal government to offer tax credits or subsidies through its own exchanges. Rather, it continually refers to “an Exchange established by the State.”
The reason that matters, according to Michael Cannon of the Cato Institute and Jonathan Adler, a professor at Case Western Reserve University School of Law, is that the “tax credits and subsidies for the purchase of qualifying health insurance plans in state-run Exchanges serve as more than just an inducement to states. These entitlements also operate as the trigger for enforcement of the Act’s ‘employer mandate.’”
Without that state-based trigger, there’s no tax penalty, according to a strict reading of the law. That’s not just their opinion. The Congressional Research Service wrote that a “strictly textual analysis of the plain meaning of the provision would likely lead to the conclusion that the IRS’s authority to issue the premium tax credits is limited only to situations in which the taxpayer is enrolled in a state-established exchange. Therefore, an IRS interpretation that extended tax credits to those enrolled in federally facilitated exchanges would be contrary to clear congressional intent … and likely be deemed invalid.”
That “likely… invalid” interpretation is exactly the one the IRS settled on when it issued a rule May 18 treating federal exchanges the same as state exchanges.
In defending the rule, the IRS couldn’t point to any section of law that established tax credits for federal exchanges. Instead the agency argued that its “interpretation” was “consistent with the language” in the law, and that Obamacare’s “legislative history does not demonstrate that Congress intended to limit the premium tax credit to State Exchanges.”
In other words: “I mean, you know, come on.”
“The IRS rule is illegal,” Cannon and Adler wrote. “It is not authorized by the text of the (Affordable Care Act), nor can it be justified on other grounds.”
The IRS rule amounts to a new tax that wasn’t authorized by Congress, they wrote.
Will businesses ultimately be penalized for refusing to comply with an illegal IRS rule?
“(W)hether a small business owner will be subject to fines or penalties for failing to provide health insurance to his employees will depend on whether the IRS rule is upheld,” Adler wrote to Ohio Watchdog. “The IRS rule, by providing tax credits and subsidies in federal exchanges, triggers the penalty on employers. Small business owners who are concerned about this may want to consider filing suit against the IRS rule, as this is the only way to protect themselves from the threat of penalties under the employer mandate.”
Thompson said that his group will “begin to prepare litigation that ensures that Ohio employers will not be subjected to the $3,000 per employee fine, and that Obamacare ultimately collapses under the weight of its own legal infirmities.”
Oklahoma already is suing to block the IRS rule, arguing that it “has no basis in any law of the United States; and directly conflicts with the unambiguous language of the very provision of the Internal Revenue Code it purports to interpret.”
While it’s usually difficult for taxpayers to sue the federal government to block illegal actions, in this case, even vigorous Obamacare apologists acknowledge that businesses would have the legal standing to do so.
Timothy Jost, a professor at the Washington and Lee University School of Law, for example, writes that the “only viable challengers to the law are employers who may in the future have to pay an exaction because they fail to offer their employees insurance.”
Since Kasich’s decision was announced Friday, that group of plaintiffs could include Ohio employers.
Contact Jon Cassidy at [email protected]
— Edited by Kelly Carson, [email protected]